S.F. could get $11M a year when Airbnb collects hotel tax

http://www.sfgate.com/default/article/S-F-could-get-11-million-a-year-when-Airbnb-5762838.php

by lladnar • 12 years ago

28 50 12 years ago

Just a point: Could AirBnB not lobby for something like a tax break on hotels with excessive vacancy, and then utilize the fact that the rooms are always available but often sparsely rented (and if this is not true, get a ton of signups that are horrible via blackhatcheatery and make it look that way anyways)? They could just get a huge tax break that still considers them a hotel but abuses the 'normal' understanding of the hotel business model that they are disrupting.

Not saying anyone should ever do it. Moreso just food for thought. Do they pull an Uber and look at the law, then flagrantly laugh, or play a cold calculated game as this gets bigger and their valuation climbs?

jedberg• 12 years ago

And the best part (for AirBnB) is that it doesn't affect their profitability at all -- the money comes right out of the pockets of the renters and owners.

mslate• 12 years ago

Basic economics, AirBnB suffers too: http://i.investopedia.com/inv/articles/site/micro3.7.gif

nostromo• 12 years ago

Yes, but how much depends on how elastic supply is, which is always an important consideration with real estate.

http://peakwatch.typepad.com/photos/research_images/fixed_su...

yahelc• 12 years ago

That's not really how tax incidence works, though. Effects of the tax will be felt by all three at some level.

dreamweapon• 12 years ago

Umm -- "profitability" (per sale) perhaps not, but sales volume most definitely.

seeingfurther2• 12 years ago

Landlords and city governments all across the country are getting wise to illegal sublets which is naturally contracting the supply of apartments from folks like myself. (I foolishly rented out my S.F. apt, got caught and politely asked to leave) Between the crack down and the coming tax wave, I think AirBnb for the single traveler becomes less attractive both on price and selection. I already see this happening in New York when I travel there. I'd rather stay in a hotel for the same price and less hassle. Certainly for a family or group Airbnb makes more sense. But I can't help thinking the AirBnb growth slows as it becomes more of a niche option.

geoelectric• 12 years ago

...which is a really big deal, in a rent control area like SF or NY where breaking lease terms is one of the few ways to get forced out of your current per-month rent.

seeingfurther2• 12 years ago

I was lucky in that I had already moved across country and was using AirBnb only to be able to cover the rent for the duration of the lease.

krschultz4• 12 years ago

I imagine AirBnB will end up paying hotel tax in every locale. That will complicate their software a bit, but that's not overly burdensome. AirBnB actually wins in that it removes one of the most quantitative anti-AirBnB arguments. The other anti-AirBnB arguments are a lot more anecdotal (terrible renter destroyed our apartment building) and speculative (AirBnB increases rental property prices for everyone).

chimeracoder• 12 years ago

speculative (AirBnB increases rental property prices for everyone)

Far from speculative - it's a rather straightforward result from the basic economic principles at play. And even if you hesitate to draw conclusions based on reasoning from first principles alone (which you should), there have been a few studies which have measured this effect empirically.

Keep in mind that the economic impact of hotels (both illegal and legal) on nearby rent has been well studied[0], so unless there is a reason to believe that Airbnb specifically is unique, the default assumption should be that they will have this effect too.

It's not a smoking gun, no, but it's far from speculative if both inductive and deductive reasoning support that conclusion.

[0] Especially zoning, which is a distinct but very related issue.

arenaninja• 12 years ago

Purely out of interest, do you have a link for any of these studies? It seems like an obvious economic conclusion, but I'd be interested in seeing to what extent.

Personally, no one in my building is subletting, but I did an airbnb search and was surprised by the number of apartments available in my area

aianus2• 12 years ago

I don't think it's fair that renting an apartment for a year is so much cheaper than renting it for one night. AirBnB closes the gap to its natural equilibrium level instead of the artificially high one created by zoning laws and hotel taxes.

baddox3• 12 years ago

Increasing rental property prices due to market forces is a good thing, because the same market forces should result in more rental properties being constructed. Unless, of course, something is prevent the latter.

krschultz4• 12 years ago

I agree with you, I think AirBnB is bad for the rental market as a whole. I'm just saying it's hard to prove. I can make the argument but there hasn't been a study and there is an open question of how much it really impacts a market as large as NYC or SF.

Shivetya• 12 years ago

to be honest there needs to be a threshold that renters have to pass before they qualify as a hotel for tax purposes. does a straight rental require a hotel tax payment or other onerous tax? Do they have to obtain a business license before they are truly liable to pay the tax? I am not clear on the idea that AirBnB can pay a tax on behalf of the home owner / property owner. How is this law worded?

Can those paying hotel taxes charge off wear and tear, capital expenses as a hotel could? It seems as this only benefits the taxing authority and not much else.

jayshahtx• 12 years ago

Am I the only one who doesn't think $11M is really going to move the needle for SF OR AirBnB?

baddox3• 12 years ago

I would imagine that a 14% price increase to the end user will absolutely move the needle. That's massive.

refurb• 12 years ago

I would guess they won't see anywhere close to $11M. People will simply start listing on Craiglist or other forums and avoid the whole AirBnB hassle.

stefan_kendall32• 12 years ago

You don't collect revenue * tax when you introduce a tax. The artificially increased price pushes down the demand and will likely force suppliers off the market, lowering revenue overall.

I could draw the supply and demand curve, but it's pretty straightforward.

skuhn2• 12 years ago

Good thing they got all of their growth and massive valuation stuff out of the way first, before worrying about pesky details like calculating hotel taxes or knowing about residency laws.

I guess the lesson for startups is to break the law until you get big enough until the hit from abiding by the law becomes inconsequential, and make sure to salt the earth behind you so that your competitors can't follow your path to success.

dmix7• 12 years ago

This is new technology entering the market. Of course neither the startups nor the slow moving legal systems are well prepared to operate in sequence. Why be critical of either?

I don't expect existing laws to be instantly relevant to new industry. The typical approach of trying to hammer old regulation down a new hole is dangerous and non-productive to society.

There wouldn't be AirBnBs if we constantly crippled every new business with old regulation before we fully understood its worth and risks.

kenko2• 12 years ago

"This is new technology entering the market. Of course neither the startups nor the slow moving legal systems are well prepared to operate in sequence. Why be critical of either?"

I feel pretty comfortable being critical of the startup that's breaking the law, in this case. I mean, shouldn't there be a pretty strong presumption in favor of working within the law, even if it is "slow-moving" (heavens forfend! and perhaps it's good to have things like that move somewhat slowly)? A presumption that "but I want to make money now" doesn't quite overpower?

skuhn2• 12 years ago

I don't see how anything has been adapted here. This isn't Uber getting some different deal versus existing taxi companies.

Airbnb always owed hotel tax, and now they are getting around to collecting it. They played the "oh, our users will pay taxes on their own" card, which obviously did not actually happen if this change is expected to increase SF revenue by $11mm a year.

Airbnb was also always subject to the residency laws of the places it operated in, but apparently didn't know that if you let someone book a place for 30 days in California they establish residency and cannot easily be gotten rid of. Despite that being sort of their entire business -- to be the knowledgable middleman that facilitates a housing rental between two parties that don't do this for a living.

kenko2• 12 years ago

And it's hard to see how this is "new technology". For one thing, we already had vrbo and couchsurfing, didn't we? What's the new tech here? And who cares if it's new technology? Is new technology in itself good?

tptacek• 12 years ago

That doesn't make sense. The technology is new. The laws aren't. Residency requirements and hotel licensing rules are something any small-town lawyer billing $150 an hour could educate a startup on.

rgbrenner4• 12 years ago

This is new technology entering the market.

Just to be clear: we're talking about a 6 year old company, and new technology that entered the market 6 years ago.

At this point, it's worth asking: in your opinion, how long is a company permitted to break the law after introducing new technology?

krschultz4• 12 years ago

Is it really new technology? VRBO has existed for how long? I remember one of the first web sites I made for money was a vacation rental listing website in the 90s, blinking gifs and all.

Your average tax accountant can talk you through all of this stuff without issue. The part that AirBnB differed on was aiming for big cities rather than mountains and beaches, and seeking out empty 2nd bedrooms rather than dedicated vacation rentals.

ryanwanger• 12 years ago

Corporations get taxed ~15% + 14% hotel tax. Individuals get taxed ~30% already on their Airbnb income (plus Airbnb charges the guest 6%-12% and the host 3%).

If they're going to charge 14% hotel tax to people renting out rooms on Airbnb, wouldn't it be more fair to tax that income at the corporate rate instead of the individual rate?

(Yes, I understand the taxes go to different places in each scenario. But from the "take home" perspective of the person/entity doing all the work here, hosts on Airbnb are already having their transaction taxed significantly more than any hotel chain).

eurleif• 12 years ago

If Airbnb hosts want to be taxed as a corporation, is anything stopping them from simply forming a corporation?

dkasper• 12 years ago

Will Airbnb let you sign up as a corporation?

jlebar• 12 years ago

Corporations get taxed ~15% + 14% hotel tax. Individuals get taxed ~30% already on their Airbnb income

Greatly simplifying things:

(Big) corporations in the US get taxed 15%, and then when they pay dividends to shareholders, that gets taxed again as income for the individual.

In fact many small businesses are incorporated in such a way that they skip the 15% tax rate and pay taxes on all of their income at the individual owner's tax rate.

S.F. could get $11M a year when Airbnb collects hotel tax

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